Differential Interest Rates on Unbalanced Growth Paths
The paper studies an unbalanced multisectoral growth path in which cost-minimizing producers are subjected to a system of differential interest rates. We ask whether such differentials in capital charges are compatible with the existence of competitive equilibrium. In Part I, we study the price-quantity equilibrium for given final demand and a given level of interest rates. We find that existence is ensured if interest-rate differentials are "in tune" with physical productivity differentials. Our proof is constructive; we show that an equilibrium solution can be computed by applying Lemke's complementary pivoting algorithm to the data of the problem. In Part II, we study how the level of interest rates and the level and structure of final demand adjust to changes in activity levels, prices and income. We find that the interest-rate differentials from Part I do not prevent the required equilibrium adjustments. This confirms our principal insight from Part I, namely that interest rate differentials are consistent with equilibrium as long as they are in tune with productivity differentials.
|Date of creation:||Dec 2000|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, University of Keele, Keele, Staffordshire, ST5 5BG - United Kingdom|
Phone: +44 (0)1782 584581
Fax: +44 (0)1782 717577
Web page: http://www.keele.ac.uk/depts/ec/cer/
More information through EDIRC
|Order Information:|| Postal: Department of Economics, Keele University, Keele, Staffordshire ST5 5BG - United Kingdom|
Web: http://www.keele.ac.uk/depts/ec/cer/pubs_kerps.htm Email:
When requesting a correction, please mention this item's handle: RePEc:kee:keeldp:2000/13. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Martin E. Diedrich)The email address of this maintainer does not seem to be valid anymore. Please ask Martin E. Diedrich to update the entry or send us the correct email address
If references are entirely missing, you can add them using this form.